The Home Mortgage Valuation Code of Conduct (HVCC) is a “law of unintended consequences” that could be suspended if legislators, appraisers, the mortgage industry and a host of others have their way.
Mortgage brokers think it stinks.
Housing consumer don’t get a say.
Now, even federal lawmakers from both political parties have something they can agree on.
The Home Mortgage Valuation Code of Conduct (HVCC) is a “law of unintended consequences,” says Ted Faravelli, Jr. executive director of the California Association of Real Estate Appraisers.
“We could talk all day about it.”
Likewise, Jim Amorin, president of the Appraisal Institute, says the law does just the opposite of what it was intended to do and now U.S. Representatives Travis Childers (D-MS) and Gary Miller (R-CA) have championed bi-partisan legislation to can the code for 18 months.
H.R. 3044 would put a moratorium on HVCC for a year and a half to redesign it, hopefully, so it will work as it was intended or dismantle it for a better model.
Effective May 1, 2009, HVCC is an agreement between New York Attorney General Andrew Cuomo, Fannie Mae and Freddie Mac, and federal regulator, the Federal Housing Finance Agency that was supposed to enhance the independence and accuracy of the appraisal process, and provide added protections for homebuyers, mortgage investors and the housing market.
Recognizing how the pressure cooker property valuation process contributed to busting the housing boom and is perhaps prolonging the bust, the Feds set up the code to relieve pressure on appraisers in order to make appraisals more reliable.
Unfortunately, good intentions don’t always pave the way, according to the Appraisal Institute.
Among other provisions, HVCC bans loan brokers and loan officers from directly ordering appraisals and mandates lenders use appraisal management firms on earmarked loans. The provision was designed to keep appraisals objective, but critics complain about high fees and other issues associated with the firms.
The National Association of Mortgage Brokers, which unsuccessfully sued to delay HVCC, says the law is responsible for delaying residential property closings and costing its members business at a critical time — during the greatest recession since the Great Depression.
“This ill-thought out code is basically damaging the economy. It will rob consumers of the low rates that are available now,” said NAMB executive director Roy DeLoach.
Faravelli says it’s more proof appraisers are the only profession run by outsiders.
“We do the work, the profession is run by somebody else and we have the same problems over and over. Ten years from now, we’ll still be talking about this,” he said.
Amorin, testifying earlier this year before the U.S. House of Representatives’ Financial Services Committee said the institute of appraisers believes HVCC has too many shortcomings.
Among them, HVCC
• Doesn’t focus enough on appraiser competency.
• Undercuts professional relationships between honest appraisers and reputable mortgage professionals.
• Increases the influence of bottom-line oriented appraisal management companies.
• Encourages the continued use of computerized AVMs (automated valuation model) and BPOs (real estate broker price opinions), which lack relevance in today’s market, instead of real feet-on-the-ground, eyes-on-the-property appraisals.
“The problem is appraisal management firms are notorious for focusing on who can do the cheapest and fastest appraisal,” says Amorin.
“What happens is, a consumer goes to the bank, the bank collects $400 for the appraisal, but pays the (appraisal management company selected) appraiser $150 to do the appraisal and keeps the difference. Good senior appraisers can’t afford to work for half price, but the consumer thinks they are getting a good appraisal. They have no idea the appraiser is getting half (the payment) and is a less-experienced appraiser. Yes there’s a transparency issue, but it’s also a quality issue,” Amorin said.
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